As we have discussed in earlier posts (see our post on C-Corps), choosing the legal structure that is best for your client’s new business is an important, and sometimes difficult, decision. We’ve broken down the pros and cons of an S-Corp and why it might be the most beneficial business structure for your client’s business.

An S-Corp starts out as a corporation and is the status adopted after the corporation is formed. The S-Corp is filed with IRS.

PROS of forming an S-Corp:

Income is ‘passed thru’ to shareholders for tax purposes

Profits and losses are added to shareholders personal tax returns, meaning taxes are only paid on profits once

Easy to revert back to C-Corp

No federal income tax

Provides limited personal liability

CONS of forming an S-Corp:

Requires the corporate formalities of a C-Corp

Limited to one class of stock:

Can be unattractive to potential investors

Limited to 100 domestic stockholders

Stockholders must be individuals (minus a few exceptions)

Cannot deduct many expenses, such as:

Health insurance

Must either report the benefits as taxable compensation to the employees or forfeit the fringe benefit deduction available to the company

Travel

Attorneys Incorporation Service assists attorneys, CPAs, and other licensed professionals in incorporating businesses of all sizes. We will incorporate your client’s business quickly, efficiently, and affordably.